Freescale, Chery to collaborate on auto electronics

DETROIT (Reuters) - Freescale Semiconductor Inc and Chery Automobile have agreed to develop electronics technology for use in the Chinese automaker's vehicles, a senior executive with the U.S. chipmaker said.

The companies will develop chips, software and other parts for engines, dashboard electronics, in-vehicle entertainment systems and more, Henri Richard, Freescale's chief marketing and sales officer, told Reuters in a telephone interview.

"It's clear that today, with China being the second-largest (auto) market in the world and growing much faster than the No. 1 market (the United States), we have to pay great attention to what's happening in that country," Richard said.

"We've been working hard at developing our footprint in the China market the last few years."

The collaboration will involve developing the technology for hybrid vehicles and increasing fuel efficiency across Chery's car lineup, Freescale executives said.

Richard said the chipmaker, which plans to formally announce the Chery deal on Monday, expects to increase auto-related semiconductor unit sales at double-digit rates, building on a February deal to supply chips for hybrid vehicles to General Motors Corp.

Privately held Freescale dominates the market for the specialized computer chips used to control vehicle powertrains. Auto-related chip sales represented more than a third of its $5.72 billion in sales last year.

Vehicle sales in China jumped 22 percent to 8.8 million last year, Freescale said, citing figures from the China Association of Automobile Manufacturers.

And there's room for more chips in Chinese cars.

In 2006, semiconductor content per vehicle in China averaged $113, compared with $302 in North America, according to market research firm Strategy Analytics. Those numbers are expected to rise to $184 and $402, respectively, by 2014.

Freescale has counted Chery as a customer for more than three years, but this latest contract deepens the relationship, allowing China's fastest-growing independent automaker to customize parts while cutting costs, Richard said.

While the contract has no time frame, it is hard to imagine a partnership shorter than five years to seven years, given product development cycles in the auto sector, he said.

The deal will result in more Freescale chips and other products in Chery cars, as well as exposing the chipmaker to the strategies of an aggressively growing company from an emerging market, he said.

"Beyond the sheer advantage of being close to them and, of course, being able to capture a significant portion of their business, there is this cultural collaboration, this understanding of where the markets are going," Richard said.

Chery, which employs 25,000 people, last year sold 381,000 passenger cars, including exports of almost 120,000 vehicles as it pushes to make itself a global brand. Its facilities have an annual capacity to build 650,000 vehicles and 400,000 engines.

Chery said this week it plans to begin selling its cars in the Americas soon, but any U.S. launch remains some years off.

It is still in talks with Chrysler LLC to expand their production alliance into a full-fledged joint venture.

Chery and Chrysler, majority-owned by Cerberus Capital Management CBS.UL, finalized a deal in July 2007 to make compact cars under the Chrysler brand for sale in the United States and elsewhere. Chrysler has said it will be some time before Chery vehicles are ready for export to North America and Western Europe.

However, last week Chrysler announced a production alliance with Japan's Nissan Motor Co Ltd under which Nissan will build a small car for Chrysler in 2010. Chrysler emphasized Chery remains firmly in its plans.

Freescale, spun off from Motorola Inc in 2004 and taken private two years later in a $17.6 billion leveraged buyout led by Blackstone Group, has been in China since 1992. The company, based in Austin, Texas, employs 4,000 people in China and has one chip manufacturing plant and eight design labs there.